Professor’s Comments September 26, 2018

Posted by OMS  at September 26th, 2018

The markets were mixed again yesterday.  Large cap stocks on the Dow were down 70 points while technology stocks on the NASDAQ rose 14 points.  The SPX was down 4 points.   Volume on the NYSE was moderate, coming in at 103 percent of its 10-day moving average.  There were 78 new highs and 149 new lows. The bearish divergence in breadth continues. 

The Fed will announce its latest policy on interest rates at 2pm this afternoon.  A rate increase is widely expected.  This will further tighten the money supply, making it harder for most people to borrow money.  This tightening is also coming at a time when the Fed is selling $40 Billion of Treasuries and Mortgage Backed Securities (MBS) from its balance sheet.  The selling will rise to $50 Billion per month in October and continue at that pace until the Fed decides that the balance sheet has been “normalized’ enough.

The Fed selling will remove about $420 Billion from the American economy in 2018, and up to an additional $600 Billion in 2019, and every year forward.  That combination of rate increases and Fed selling will be a huge headwind for the markets to overcome.

So, with the markets near pattern targets and on mixed signals, I’m not doing much today.  I want to hear what the Fed says about interest rates, and then react to it.

Yesterday’s decline in the Dow did not change my key market timing signal for the large cap index.  However, the rise in the NASDAQ did cause my VTI-volume indicator for NASDAQ technology to turn neutral.  Remember, neutral is not a major signal change.  It’s just an indication that the NADSAQ is showing short-term strength, something that is perfectly normal going into a Fed Day, which is usually strong early. This could change at 2pm after the Fed announcement.    

My market timing indicator for gold and the Dollar remains neutral, but negative for Bonds.  The indicator for Crude Oil remains positive.  Energy stocks had another nice day yesterday.  

The Sector Ratio remained at 19-5 positive after yesterday’s session.  The Strong Sector List continues to be dominated by the ‘defensive’ sectors like Household Products, Energy, PharmaBio, Telecoms, and Cap Equipment.  The Materials Sector, which includes gold, continues remains near the middle of the Strong List, with a RS rating of 1.  

The Weak Sector List was led by Semiconductors, Banks, Healthcare, Foods, and Computers. 

Students should continue to hold stocks in the strongest sectors and avoid those in the weak sectors.

Gold (GLD) rose 0.18 cents to 113.65.  My VTI-volume indicator for gold remains on a neutral signal.  However, the same indicator for the gold miners is positive. Students should note how the Bollinger Bands on GLD continue to narrow.   

If GLD breaks higher and starts to move above its 50-day moving average, it would be a strong indication that Major Wave 3 up is starting.  I’m still holding my ‘trial’ positions in gold and mining stocks, as I patiently wait for the VTI-volume indicator to turn positive.  The indicator is getting close, but it’s still not there yet.  The last Sell Signal on GLD occurred on 15 June, when the ETF was trading at 121.34.  Now the indicator is neutral with GLD trading at 113.65.  Seeing GLD drop those 8 points since its Sell Signal is why I’m waiting for the signal to change.

BTW, silver had a nice day yesterday.  The VTI-volume indicator for SLV is also neutral.

Waiting for the Fed announcement.

That’s what I’m doing,

h

Market Signals for

09-26-2018

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